Stochastic optimum control of macroeconometric models using the algorithm OPTCON

OPTCON is an algorithm which determines approximate numerical solutions of optimum control problems with a quadratic objective function and a nonlinear dynamic econometric model. The model may be disturbed by additive error terms, and some or all of the parameters of the model may be random varaibles. The authors give a brief overview of the algorithm, which has been implemented in GAUSS, and report on its applications to two small macroeconometric models for Austria, one being nonlinear and estimated by OLS, the other linear and estimated by 3SLS. The effects of introducing uncertainty about the parameters on optimal policies are investigated. OLS=Ordinary Least Squares; 3SLS=Semiparametric Least Squares.